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For all intents and purposes, farmland is a pretty boring investment.
However, interest in this asset class as a whole has skyrocketed in recent years. This could be due to the fact that Bill Gates is buying land left and right. Or, it might be because boring investments become desirable during times of uncertainty.
Whatever the reason may be, investors are often curious about the return potential when exploring a new opportunity.
We are going to be discussing the historical returns of farmland based on data available today. However, we will also be looking at a few other factors that should be considered such as liquidity and volatility.
If you are curious how farmland stacks up against other assets, check out:
Farmland Historical Returns
For comparison sake, these assets had the following annualized return:
- Stocks – 12%
- Commercial Real Estate – 8%
- Bonds – 6.4%
- Gold – 6.5%
- CD's – 2.6%
Upon first impressions, farmland has slightly underperformed the stock market while outperforming the rest. However, that is not the entire story. What must also be considered is the volatility experienced with both, or the up and down price movements.
|$8,000+||View Investments||Yes||US Farmland, Timberland, Vineyards|
|$15,000+||View Investments||Yes||US Farmland|
|$30,000+||View Investments||No||South American Farmland|
Based on performance from 2000 to 2018, farmland delivered solid returns with much less volatility than equities or the stock market. In fact, the volatility of farmland was similar to the volatility of bonds during the same period.
In a nutshell, farmland delivers strong returns for investors with significantly less ups and downs than the stock market. This makes the 11% annualized return all the more impressive.
However, there is one more important factor to consider for now and that is liquidity.
While farmland has delivered solid returns with low volatility, it is important to fully understand the liquidity of this investment.
Unless you are purchasing farmland via a publicly traded REIT, this is not a highly liquid investment.
Simply put, it isn't easy or fast to turn the asset back into cash. Stocks are a highly liquid investment because you can sell them at the click of a button. Farmland, on the other hand, often takes months to sell.
This illiquidity, or difficulty associated with buying and selling, is actually one of the things that make this a low volatility asset. That being said, farmland is considered by most to be a long term 5+ year investment.
Overall, farmland delivers returns that are competitive with the stock market with less volatility.
The caveat here is that is in exchange for lower liquidity. The stock market has some years that are up and some that are down, while farmland has been delivering positive returns every single year for over a decade.
Most experts would recommend investing in many different assets such as stocks, bonds and alternative assets like farmland.